Statement by the IMF Mission to Myanmar

Press Release 14/284
June 17, 2014

An International Monetary Fund (IMF) team led by Mr. Matt Davies visited Myanmar during June 4–17 to hold the 2014 Article IV Consultation discussions with the authorities.1 The mission met with Minister of President’s Office U Soe Thane, Union Minister of Finance U Win Shein, Central Bank of Myanmar (CBM) Governor U Kyaw Kyaw Maung, as well as other senior officials, parliamentarians, representatives from private sector and civil societies, donors and the diplomatic community.

At the conclusion of the mission, Mr. Davies made the following statement:

“Myanmar is well placed to build on its recent economic reforms and embark on an extended period of rapid growth, emulating its regional peers. However, ensuring that this growth is sustainable and inclusive requires decisive implementation of a broad range of policy and structural reforms.

“The economic outlook is favorable. Real GDP growth is expected to accelerate slightly to 8½ percent in fiscal year (FY) 2014/15 (year ending March) from 8¼ percent in FY 2013/14, led by rising gas production and investment. Inflation is expected to remain contained at around 6½ percent (y/y) in FY2014/15 while increasing capital inflows outweigh a widening external current account deficit. Broad money and credit to the economy will continue to expand at double-digit rates.

“There are, however risks to the outlook. Fiscal and external buffers remain thin and demand-side pressures on inflation and large capital inflows will strain the still-infant macroeconomic management tools. The expected entry of foreign banks to the already rapidly growing financial sector will place further demands on macroeconomic policy and stretch scarce supervision capacity. Fiscal risks are also rising despite recent reductions in the fiscal deficit. These stem from the use of external borrowing to finance off-budget operations, increasing tax exemptions and changing relations with state and regional governments and state economic enterprises (SEEs).

“Completing the CBM’s transition to an autonomous institution with enhanced capacity and better tools will underpin continued macroeconomic stability. This transition requires continued growth in CBM’s international reserves, while maintaining a flexible exchange rate regime. Further progress in building monetary policy tools is needed to address inflationary pressures and manage foreign exchange inflows. The expected introduction of treasury-bill auctions in 2015 will provide a framework for reducing CBM deficit financing and lay the basis for eventual interest rate liberalization.

“The 2014/15 fiscal deficit is expected to remain within the authorities’ 5 percent-of-GDP deficit target. However, this is in part due to large one-off revenues from telecom licences. Keeping the underlying medium-term deficit under 5 percent of GDP, while also expanding development spending, requires increased tax revenues. This relies on policy reforms that create a system that is easy to comply with and enforce, with minimal exemptions. It also needs further progress in reforming tax administration. Increasing the share of concessional financing will provide space for more development spending.

“Modernization of the financial sector is making headway, but requires a modernized regulatory system and stronger supervision. Implementing modernized prudential regulations as soon as possible that apply to all banks, will lay the foundation for the development of a sound financial system. This is particularly important given the expected entry of foreign banks. In order to allow supervision capacity to develop, and to minimize risks, the issuance of new domestic licenses should be carefully controlled.

“The IMF will continue to work closely with the authorities on macroeconomic policies and reforms. Our technical assistance and training will continue to intensify under the guidance of the authorities and in coordination with other development partners.

“The team thanks the authorities for the candid exchange of views, and their warm hospitality during the mission.”

1 The completion of the Article IV Consultation is subject to the discussion by the IMF Executive Board.